July 2026
Summary
The U.S. commercial real estate market continued to improve during the second quarter of 2026 despite elevated borrowing costs and slower economic growth. The Federal Reserve maintained interest rates at 3.50%–3.75%, while the 10-year Treasury remained elevated at 4.47%, continuing to challenge acquisitions, refinancing, and new development. Nevertheless, improving property fundamentals across several sectors suggest the market is transitioning from stabilization toward recovery.
Sector Performance Overview
Office
Office fundamentals reached an important milestone as 12-month net absorption turned positive (26.1 million SF) for the first time in nearly four years. Vacancy declined to 13.8%, while rent growth improved to 1.7%, indicating the sector has entered an early recovery phase led by Class A properties.
Multifamily
Demand remains healthy despite elevated supply. Deliveries have slowed considerably, reducing the supply-demand imbalance. Vacancy improved to 8.2%, while annual rent growth increased to 0.8%, signaling gradual stabilization as excess inventory is absorbed.
Retail
Retail continues to outperform all major property types. Annual absorption accelerated to 20.1 million SF, with vacancy remaining low at 4.4% despite additional new construction. General retail and neighborhood centers led leasing activity, reinforcing investor confidence in necessity-based retail assets.
Industrial
Industrial continues its post-pandemic normalization. Annual absorption increased 85% year-over-year to 174.5 million SF, significantly narrowing the supply-demand gap. Vacancy remains elevated at 7.5%, while rent growth moderated to 1.3%, reflecting improving—but still balanced—market conditions.
Hospitality
Hotel fundamentals remain stable. Occupancy improved slightly to 62.7%, while ADR reached $163 and RevPAR increased to $102, both comfortably exceeding pre-pandemic benchmarks. Investment activity has strengthened modestly despite elevated financing costs.
Key Takeaways
- Retail remains the strongest performing commercial asset class.
- Office demand positive for first time since 2022.
- Moderating multifamily supply continues to improve fundamentals
- Industrial rebalancing with significantly stronger absorption
- Elevated interest rates and financing cost continue to be the primary headwind.
To read the full report please follow link below. Data courtesy of NAR.
Osprey Commercial Real Estate 